Defense Acquisitions
DOD Must Balance Its Needs with Available Resources and Follow an Incremental Approach to Acquiring Weapon Systems Gao ID: GAO-09-431T March 3, 2009Since 1990, GAO has consistently designated the Department of Defense's (DOD) management of its major weapon acquisitions as a high-risk area. A broad consensus exists that weapon system problems are serious, but efforts at reform have had limited impact. Last year, GAO reported that DOD's portfolio of weapon programs experienced cost growth of $295 billion from first estimates, were delayed by an average of 21 months, and delivered fewer quantities and capabilities to the warfighter than originally planned. At a time when DOD faces increased fiscal pressures from ongoing operations in Iraq and Afghanistan, and the federal budget is strained by a growing number of priorities, it is critical that the department effectively manage its substantial investment in weapon system programs. Every dollar wasted or used inefficiently on acquiring weapon systems means that less money is available for the government's other important budgetary demands. This testimony describes the systemic problems that contribute to the cost, schedule, and performance problems in weapon system programs, recent actions that DOD has taken to address these problems, proposed reform legislation that the committee recently introduced, and additional steps needed to improve future performance of acquisition programs. The testimony is drawn from GAO's body of work on DOD's acquisition, requirements, and funding processes.
For several years, GAO's work has highlighted a number of strategic- and program-level causes for cost, schedule, and performance problems in DOD's weapon system programs. At the strategic level, DOD's processes for identifying warfighter needs, allocating resources, and developing and procuring weapon systems, which together define the department's overall weapon system investment strategy, are fragmented. As a result, DOD fails to balance the competing needs of the services with those of the joint warfighter and commits to more programs than resources can support. At the program level, DOD allows programs to begin development without a full understanding of requirements and the resources needed to execute them. The lack of early systems engineering, acceptance of unreliable cost estimates based on overly optimistic assumptions, failure to commit full funding, and the addition of new requirements well into the acquisition cycle all contribute to poor outcomes. Moreover, DOD officials are rarely held accountable for poor decisions or poor program outcomes. Recognizing the need for more discipline in weapon systems acquisition and to implement Congressional direction, DOD recently revised its policy and introduced several initiatives. The revised policy, if implemented properly, could provide a foundation for developing individual acquisition programs with sound, knowledge-based business cases. The policy recommends the completion of key systems engineering activities, establishes early milestone reviews, requires competitive prototyping, and establishes review boards to manage potential requirements changes to ongoing programs. The committee's proposed reform legislation should lead to further improvements in outcomes. Improved systems engineering, early preliminary design reviews, and strengthened independent cost estimates and technology readiness assessments should make the critical front end of the acquisition process more disciplined. Establishing a termination criterion for critical cost breaches could help prevent the acceptance of unrealistic cost estimates at program initiation. Having greater combatant command involvement in determining requirements and greater consultation between the requirements, budget, and acquisition processes could help improve the department's efforts to balance its portfolio of weapon system programs. Legislation and policy revisions may lead to improvements but cannot work effectively without changes to the overall acquisition environment and the incentives that drive it. Resisting the urge to achieve revolutionary but unachievable capabilities, allowing technologies to mature in the technology base before bringing them onto programs, ensuring requirements are well-defined and doable, and instituting shorter development cycles would all make it easier to estimate costs accurately, and then predict funding needs and allocate resources effectively. These measures will only succeed if the department balances its portfolio and adopts an incremental approach to developing and procuring weapon systems.
GAO-09-431T, Defense Acquisitions: DOD Must Balance Its Needs with Available Resources and Follow an Incremental Approach to Acquiring Weapon Systems
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Testimony:
Before the Committee on Armed Services, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 9:30 a.m. EST:
Tuesday, March 3, 2009:
Defense Acquisitions:
DOD Must Balance Its Needs with Available Resources and Follow an
Incremental Approach to Acquiring Weapon Systems:
Statement of Michael J. Sullivan, Director: Acquisition and Sourcing
Management:
GAO-09-431T:
GAO Highlights:
Highlights of GAO-09-431T, a testimony before the Committee on Armed
Services, U.S. Senate.
Why GAO Did This Study:
Since 1990, GAO has consistently designated the Department of Defense‘s
(DOD) management of its major weapon acquisitions as a high-risk area.
A broad consensus exists that weapon system problems are serious, but
efforts at reform have had limited impact. Last year, GAO reported that
DOD‘s portfolio of weapon programs experienced cost growth of $295
billion from first estimates, were delayed by an average of 21 months,
and delivered fewer quantities and capabilities to the warfighter than
originally planned.
At a time when DOD faces increased fiscal pressures from ongoing
operations in Iraq and Afghanistan, and the federal budget is strained
by a growing number of priorities, it is critical that the department
effectively manage its substantial investment in weapon system
programs. Every dollar wasted or used inefficiently on acquiring weapon
systems means that less money is available for the government‘s other
important budgetary demands.
This testimony describes the systemic problems that contribute to the
cost, schedule, and performance problems in weapon system programs,
recent actions that DOD has taken to address these problems, proposed
reform legislation that the committee recently introduced, and
additional steps needed to improve future performance of acquisition
programs. The testimony is drawn from GAO‘s body of work on DOD‘s
acquisition, requirements, and funding processes.
What GAO Found:
For several years, GAO‘s work has highlighted a number of strategic-
and program-level causes for cost, schedule, and performance problems
in DOD‘s weapon system programs. At the strategic level, DOD‘s
processes for identifying warfighter needs, allocating resources, and
developing and procuring weapon systems, which together define the
department‘s overall weapon system investment strategy, are fragmented.
As a result, DOD fails to balance the competing needs of the services
with those of the joint warfighter and commits to more programs than
resources can support. At the program level, DOD allows programs to
begin development without a full understanding of requirements and the
resources needed to execute them. The lack of early systems
engineering, acceptance of unreliable cost estimates based on overly
optimistic assumptions, failure to commit full funding, and the
addition of new requirements well into the acquisition cycle all
contribute to poor outcomes. Moreover, DOD officials are rarely held
accountable for poor decisions or poor program outcomes.
Recognizing the need for more discipline in weapon systems acquisition
and to implement Congressional direction, DOD recently revised its
policy and introduced several initiatives. The revised policy, if
implemented properly, could provide a foundation for developing
individual acquisition programs with sound, knowledge-based business
cases. The policy recommends the completion of key systems engineering
activities, establishes early milestone reviews, requires competitive
prototyping, and establishes review boards to manage potential
requirements changes to ongoing programs.
The committee‘s proposed reform legislation should lead to further
improvements in outcomes. Improved systems engineering, early
preliminary design reviews, and strengthened independent cost estimates
and technology readiness assessments should make the critical front end
of the acquisition process more disciplined. Establishing a termination
criterion for critical cost breaches could help prevent the acceptance
of unrealistic cost estimates at program initiation. Having greater
combatant command involvement in determining requirements and greater
consultation between the requirements, budget, and acquisition
processes could help improve the department‘s efforts to balance its
portfolio of weapon system programs.
Legislation and policy revisions may lead to improvements but cannot
work effectively without changes to the overall acquisition environment
and the incentives that drive it. Resisting the urge to achieve
revolutionary but unachievable capabilities, allowing technologies to
mature in the technology base before bringing them onto programs,
ensuring requirements are well-defined and doable, and instituting
shorter development cycles would all make it easier to estimate costs
accurately, and then predict funding needs and allocate resources
effectively. These measures will only succeed if the department
balances its portfolio and adopts an incremental approach to developing
and procuring weapon systems.
View [hyperlink, http://www.gao.gov/products/GAO-09-431T] or key
components. For more information, contact Michael J. Sullivan at (202)
512-4841 or sullivanm@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss the Department of Defense's
(DOD) management of its major weapon system acquisitions--an area that
has been on GAO's high-risk list since 1990. Prior to and since that
time, Congress and DOD have continually explored ways to improve
acquisition outcomes without significant results. While the
technological sophistication of DOD weapon systems is unparalleled,
major weapon programs continue to cost more, take longer to complete,
and deliver fewer quantities and capabilities than originally planned.
Last year we reported that the cumulative cost growth in DOD's
portfolio of 95 major defense acquisition programs was $295 billion
from first estimates and the average delay in delivering promised
capabilities to the warfighter was 21 months. Clearly, some problems
are to be expected in developing weapon systems given the technical
risks and complexities involved. However, all too often we have found
that cost and schedule problems are rooted in poor planning, execution,
and oversight.
Investment in weapon systems is now at its highest level in two
decades, and DOD plans to spend more than $357 billion over the next 5
years on major defense acquisition programs. Effective management of
this substantial investment is critical as competition for funding has
increased dramatically within the department and across the government.
DOD faces a number of fiscal pressures: the ongoing military campaigns
in Afghanistan and Iraq, rising personnel costs, and the rebuilding and
modernization of the force. In addition, the economic and fiscal crises
now facing the nation have required unprecedented spending by the
federal government, and budget deficits are projected to remain high
for many years to come. At a time when the federal budget is strained
by spending needs for a growing number of national priorities, it is
imperative that DOD get the best value for every dollar it invests in
weapon system programs. Every dollar wasted during the development and
acquisition of weapon systems is money not available for other
priorities within DOD and elsewhere in the government.
Today, I will discuss (1) the systemic problems that have contributed
to cost, schedule, and performance problems in DOD's acquisition of
major weapon systems; (2) recent actions the department has taken to
address these problems; (3) our observations on the committee's
proposed acquisition reform legislation; and (4) steps that Congress
and the department need to take to improve the future performance of
acquisition programs. The statement includes findings from our July
2008 report on a knowledge-based funding approach and February 2009
report on potential changes to DOD's acquisition management framework.
[Footnote 1] It also draws from our extensive body of work on DOD's
acquisition of weapon systems. A list of our key products is provided
at the end of this statement. This work was conducted in accordance
with generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
Fragmented Investment Decision Making, Unexecutable Programs, and Lack
of Accountability Underlie Poor Acquisition Outcomes:
Over the past several years our work has highlighted a number of
underlying systemic causes for cost growth and schedule delays at both
the strategic and program levels. At the strategic level, DOD's
processes for identifying warfighter needs, allocating resources, and
developing and procuring weapon systems--which together define DOD's
overall weapon system investment strategy--are fragmented. As a result,
DOD fails to effectively address joint warfighting needs and commits to
more programs than it has resources for, thus creating unhealthy
competition for funding. At the program level, a military service
typically establishes and DOD approves a business case containing
requirements that are not fully understood and cost and schedule
estimates that are based on overly optimistic assumptions rather than
on sufficient knowledge. Once a program begins, it too often moves
forward with inadequate technology, design, testing, and manufacturing
knowledge, making it impossible to successfully execute the program
within established cost, schedule, and performance targets.
Furthermore, DOD officials are rarely held accountable for poor
decisions or poor program outcomes.
DOD Lacks an Integrated Approach to Balance Weapon System Investments:
At the strategic level, DOD largely continues to define warfighting
needs and make investment decisions on a service-by-service and
individual platform basis, using fragmented decision-making processes.
This approach makes it difficult for the department to achieve a
balanced mix of weapon systems that are affordable and feasible and
that provide the best military value to the joint warfighter. In
contrast, we have found that successful commercial enterprises use an
integrated portfolio management approach to focus early investment
decisions on products collectively at the enterprise level and ensure
that there is a sound basis to justify the commitment of resources.
[Footnote 2] By following a disciplined, integrated process-
-during which the relative pros and cons of competing product proposals
are assessed based on strategic objectives, customer needs, and
available resources, and where tough decisions about which investments
to pursue and not to pursue are made--companies minimize duplication
between business units, move away from organizational stovepipes, and
effectively support each new development program they commit to. To be
effective, integrated portfolio management must have strong, committed
leadership; empowered portfolio managers; and accountability at all
levels of the organization.
DOD determines its capability needs through the Joint Capabilities and
Integration Development System (JCIDS). While JCIDS provides a
framework for reviewing and validating needs, it does not adequately
prioritize those needs from a joint, departmentwide perspective; lacks
the agility to meet changing warfighter demands; and validates almost
all of the capability proposals that are submitted. We recently
reviewed JCIDS documentation related to new capability proposals and
found that most--almost 70 percent--were sponsored by the military
services with little involvement from the joint community, including
the combatant commands, which are responsible for planning and carrying
out military operations.[Footnote 3] Because DOD also lacks an analytic
approach to determining the relative importance of the capabilities
needed for joint warfighting, all proposals appear to be treated as
equal priorities within the JCIDS process. By continuing to rely on
capability needs defined primarily by the services, DOD may be losing
opportunities for improving joint warfighting capabilities and reducing
the duplication of capabilities in some areas. The JCIDS process has
also proven to be lengthy and cumbersome--taking on average up to 10
months to validate a need--thus undermining the department's efforts to
effectively respond to the needs of the warfighter, especially those
needs that are near term. Furthermore, the vast majority of capability
proposals that enter the JCIDS process are validated or approved
without accounting for the resources or technologies that will be
needed to acquire the desired capabilities. Ultimately, the process
produces more demand for new weapon system programs than available
resources can support.
The funding of proposed programs takes place through a separate
process, the department's Planning, Programming, Budgeting, and
Execution (PPBE) system, which is not synchronized with JCIDS. While
JCIDS is a continuous, need-driven process that unfolds in response to
capability proposals as they are submitted by sponsors, PPBE is a
calendar-driven process comprising phases occurring over a 2-year
cycle, which can lead to resource decisions for proposed programs that
may occur several years later. In addition, because PPBE is structured
by military service and defense programs and not by the joint
capability areas being used in JCIDS, it is difficult to link resources
to capabilities. The PPBE process also largely allocates resources
based on historical trends rather than on a strategic basis. Service
shares of the overall budget have remained relatively static for
decades, even though DOD's strategic environment and warfighting needs
have changed dramatically in recent years. Because DOD's programming
and budgeting reviews occur at the back end of the PPBE process--after
the services have developed their budgets--it is difficult and
disruptive to make changes, such as terminating programs to pay for
new, higher-priority programs.
We recently reviewed the impact of the PPBE process on major defense
acquisition programs and found that the process does not produce an
accurate picture of the department's resource needs for weapon system
programs, in large part because it allows too many programs to go
forward with unreliable cost estimates and without a commitment to
fully fund them.[Footnote 4] The cost of many of the programs we
reviewed exceeded the funding levels planned for and reflected in the
Future Years Defense Program (FYDP)--the department's long-term
investment strategy (see figure 1). DOD's failure to balance its needs
with available resources promotes an unhealthy competition for funding
that encourages sponsors of weapon system programs to pursue overly
ambitious capabilities and underestimate costs to appear affordable.
Rather than limit the number and size of programs or adjust
requirements, DOD opts to push the real costs of programs to the
future. With too many programs under way for the available resources
and high cost growth occurring in many programs, the department must
make up for funding shortfalls by shifting funds from one program to
pay for another, reducing system capabilities, cutting procurement
quantities, or in rare cases terminating programs. Such actions not
only create instability in DOD's weapon system portfolio, they further
obscure the true future costs of current commitments, making it
difficult to make informed investment decisions.
Figure 1: Funding Shortfalls at the Start of Development for Five Major
Weapon System Programs[A]:
[Refer to PDF for image: horizontal bar graph]
Program: MMA;
Level of funding in the FYDP in the year the program was initiated:
32%;
Level of funding the program needed to be fully funded in the initial
FYDP: 35%;
Funding required beyond the initial FYDP to complete development: 33%.
Program: WIN-T;
Level of funding in the FYDP in the year the program was initiated:
21%;
Level of funding the program needed to be fully funded in the initial
FYDP: 49%;
Funding required beyond the initial FYDP to complete development: 30%.
Program: FCS;
Level of funding in the FYDP in the year the program was initiated:
26%;
Level of funding the program needed to be fully funded in the initial
FYDP: 41%;
Funding required beyond the initial FYDP to complete development: 33%.
Program: JSF;
Level of funding in the FYDP in the year the program was initiated:
64%;
Level of funding the program needed to be fully funded in the initial
FYDP: 13%;
Funding required beyond the initial FYDP to complete development: 23%.
Program: Global Hawk;
Level of funding in the FYDP in the year the program was initiated:
31%;
Level of funding the program needed to be fully funded in the initial
FYDP: 48%;
Funding required beyond the initial FYDP to complete development: 21%.
Source: DOD (data); GAO (analysis and presentation).
[A] Multi-Mission Maritime Aircraft (MMA), Warfighter Information
Network--Tactical (WIN-T), Future Combat Systems (FCS), Joint Strike
Fighter (JSF), and Global Hawk.
[End of figure]
Initiating Programs with Inadequate Knowledge of Requirements and
Resources Often Results in Poor Outcomes:
At the program level, the key cause of poor outcomes is the approval of
programs with business cases that contain inadequate knowledge about
requirements and the resources--funding, time, technologies, and
people--needed to execute them. Our work in best practices has found
that an executable business case for a program demonstrated evidence
that (1) the identified needs are real and necessary and that they can
best be met with the chosen concept and (2) the chosen concept can be
developed and produced within existing resources. Over the past several
years, we have found no evidence of the widespread adoption of such an
approach for major acquisition programs in the department. Our annual
assessments of major weapon systems have consistently found that the
vast majority of programs began system development without mature
technologies and moved into system demonstration without design
stability.
The chief reason for these problems is the encouragement within the
acquisition environment of overly ambitious and lengthy product
developments--sometimes referred to as revolutionary or big bang
acquisition programs--that embody too many technical unknowns and not
enough knowledge about the performance and production risks they
entail. The knowledge gaps are largely the result of a lack of early
and disciplined systems engineering analysis of a weapon system's
requirements prior to beginning system development. Systems engineering
translates customer needs into specific product requirements for which
requisite technological, software, engineering, and production
capabilities can be identified through requirements analysis, design,
and testing. Early systems engineering provides the knowledge a product
developer needs to identify and resolve performance and resource gaps
before product development begins by either reducing requirements,
deferring them to the future, or increasing the estimated cost for the
weapon system's development. Because the government often does not
perform the proper up-front requirements analysis to determine whether
the program will meet its needs, significant contract cost increases
can and do occur as the scope of the requirements changes or becomes
better understood by the government and contractor. Not only does DOD
not conduct disciplined systems engineering prior to the beginning of
system development, it has allowed new requirements to be added well
into the acquisition cycle. We have reported on the negative impact
that poor systems engineering practices have had on several programs,
such as the Global Hawk Unmanned Aircraft System, F-22A, Expeditionary
Fighting Vehicle, and Joint Air-to-Surface Standoff Missile.[Footnote
5]
With high levels of uncertainty about requirements, technologies, and
design, program cost estimates and related funding needs are often
understated, effectively setting programs up for cost and schedule
growth. We recently assessed the service and independent cost estimates
for 20 major weapon system programs and found that while the
independent estimates were somewhat higher, both estimates were too low
in most cases.[Footnote 6] In some of the programs we reviewed, cost
estimates have been off by billions of dollars. For example, the
initial service estimate for the development of the Marines'
Expeditionary Fighting Vehicle was about $1.1 billion. The department's
Cost Analysis and Improvement Group (CAIG) estimated the development
cost of the program to be $1.4 billion, but development costs for the
program are now expected to be close to $3.6 billion. In the case of
the Future Combat System (FCS), the Army's initial estimate for the
development cost was about $20 billion, while CAIG's estimate was $27
billion. The department began the program using the program office's
estimate of $20 billion, but development costs for the FCS are now
estimated to be $28 billion and the program is still dealing with
significant technical risk. Estimates this far off the mark do not
provide the necessary foundation for sufficient funding commitments and
realistic long-term planning.
The programs we reviewed frequently lacked the knowledge needed to
develop realistic cost estimates. For example, program Cost Analysis
Requirements Description documents--used to build the program cost
estimate--often lack sufficient detail about planned program content
for developing sound cost estimates. Without this knowledge, cost
estimators must rely heavily on parametric analysis and assumptions
about system requirements, technologies, design maturity, and the time
and funding needed. A cost estimate is then usually presented to
decision makers as a single, or point, estimate that is expected to
represent the most likely cost of the program but provides no
information about the range of risk and uncertainty or level of
confidence associated with the estimate.
Lack of Accountability for Making Weapon System Decisions Hinders
Achieving Successful Outcomes:
DOD's requirements, resource allocation, and acquisition processes are
led by different organizations, thus making it difficult to hold any
one person or organization accountable for saying no to a proposed
program or for ensuring that the department's portfolio of programs is
balanced. DOD's 2006 Defense Acquisition Performance Assessment study
observed that these processes are not connected organizationally at any
level below the Deputy Secretary of Defense and concluded that this
weak structure induces instability and inhibits accountability.
Furthermore, a former Under Secretary of Defense for Acquisitions,
Technology and Logistics has stated that weapon system investment
decisions are a shared responsibility in the department and, therefore,
no one individual is accountable for these decisions. Frequent turnover
in leadership positions in the department exacerbates the problem. The
average tenure, for example, of the Under Secretary of Defense for
Acquisition, Technology and Logistics over the past 22 years has been
only about 20 months.[Footnote 7]
When DOD's strategic processes fail to balance needs with resources and
allow unsound, unexecutable programs to move forward, program managers
cannot be held accountable when the programs they are handed already
have a low probability of success. Program managers are also not
empowered to make go or no-go decisions, have little control over
funding, cannot veto new requirements, and have little authority over
staffing. At the same time, program managers frequently change during a
program's development, making it difficult to hold them accountable for
the business cases that they are entrusted to manage and deliver.
The government's lack of control over and accountability for decision
making is further complicated by DOD's growing reliance on technical,
business, and procurement expertise supplied by contractors. This
reliance may reach the point where the foundation upon which decisions
are based may be largely crafted by individuals who are not employed by
the government, who are not bound by the same rules governing their
conduct, and who are not required to disclose any financial or other
personal interests they may have that conflict with the
responsibilities they have performing contract tasks for DOD. For
example, while the total planned commitments to major acquisition
programs have doubled over recent years, the size of the department's
systems engineering workforce has remained relatively stable, leading
program offices to rely more on contractors for systems engineering
support. Further, in systems development, DOD typically uses cost-
reimbursement contracts in which it generally pays the reasonable,
allocable, and allowable costs incurred for the contractor's best
efforts, to the extent provided by the contract. The use of these
contracts may contribute to the perpetuation of an acquisition
environment that lacks incentives for contractors to follow best
practices and keep costs and schedules in check.
Recent DOD Policy Changes Could Improve Future Performance of Weapon
System Programs:
The department understands many of the problems that affect acquisition
programs and has recently taken steps to remedy them. It has revised
its acquisition policy and introduced several initiatives based in part
on direction from Congress and recommendations from GAO that could
provide a foundation for establishing sound, knowledge-based business
cases for individual acquisition programs. However, to improve
outcomes, DOD must ensure that its policy changes are consistently
implemented and reflected in decisions on individual programs--not only
new program starts but also ongoing programs as well. In the past,
inconsistent implementation of existing policy has hindered DOD's
efforts to execute acquisition programs effectively. Moreover, while
policy improvements are necessary, they may be insufficient unless the
broader strategic issues associated with the department's fragmented
approach to managing its portfolio of weapon system investments are
also addressed.
In December 2008, DOD revised its policy governing major defense
acquisition programs in ways intended to provide key department leaders
with the knowledge needed to make informed decisions before a program
starts and to maintain disciplined development once it begins. The
revised policy recommends the completion of key systems engineering
activities before the start of development, includes a requirement for
early prototyping, establishes review boards to identify and mitigate
technical risks and evaluate the impact of potential requirements
changes on ongoing programs, and incorporates program manager
agreements to increase leadership stability and management
accountability. The policy also establishes early milestone reviews for
programs going through the pre-systems acquisition phase. In the past,
DOD's acquisition policy may have encouraged programs to rush into
systems development without sufficient knowledge, in part, because no
formal milestone reviews were required before system development. If
implemented, these policy changes could help programs replace risk with
knowledge, thereby increasing the chances of developing weapon systems
within cost and schedule targets while meeting user needs. Some aspects
of the policy were first pilot-tested on selected programs, such as the
Joint Light Tactical Vehicle program, and indications are that these
programs are in the process of acquiring the requisite knowledge before
the start of systems development. Some key elements of the department's
new acquisition policy include:
* a new materiel development decision as a starting point for all
programs regardless of where they are intended to enter the acquisition
process,
* a more robust Analysis of Alternatives (AOA) to assess potential
materiel solutions that address a capability need validated through
JCIDS,
* a cost estimate for the proposed solution identified by the AOA,
* early program support reviews by systems engineering teams,
* competitive prototyping of the proposed system or key system elements
as part of the technology development phase,
* certifications for entry into the technology development and system
development phases (as required by congressional legislation),
* preliminary design review that may be conducted before the start of
systems development, and:
* configuration steering boards to review all requirements and
technical changes that have potential to affect cost and schedule.
As part of its strategy for enhancing the roles of program managers in
major weapon system acquisitions, the department has established a
policy that requires formal agreements among program managers, their
acquisition executives, and the user community setting forth common
program goals. These agreements are intended to be binding and to
detail the progress the program is expected to make during the year and
the resources the program will be provided to reach these goals. DOD
also requires program managers to sign tenure agreements so that their
tenure will correspond to the next major milestone review closest to 4
years. The department acknowledges that any actions taken to improve
accountability must be based on a foundation whereby program managers
can launch and manage programs toward successful performance, rather
than focusing on maintaining support and funding for individual
programs. DOD acquisition leaders have also stated that any
improvements to program managers' performance depend on the
department's ability to promote requirements and resource stability
over weapon system investments.
Over the past few years, DOD has also been testing portfolio management
approaches in selected capability areas--command and control, net-
centric operations, battlespace awareness, and logistics--to facilitate
more strategic choices for resource allocation across programs. The
department recently formalized the concept of capability portfolio
management, issuing a directive in 2008 that established policy and
assigned responsibilities for portfolio management. The directive
established nine joint capability area portfolios, each to be managed
by civilian and military co-leads. While the portfolios have no
independent decision-making authority over requirements determination
and resource allocation, according to some DOD officials, they provided
key input and recommendations in this year's budget process. However,
without portfolios in which managers have authority and control over
resources, the department is at risk of continuing to develop and
acquire systems in a stovepiped manner and of not knowing if its
systems are being developed within available resources.
Observations on Proposed Acquisition Reform Legislation:
Overall, we believe that the legislative initiatives being proposed by
the committee have the potential, if implemented, to lead to
significant improvements in DOD's management of weapon system programs.
Several of the initiatives--including the increased emphasis on systems
engineering and developmental testing, the requirement for earlier
preliminary design reviews, and the strengthening of independent cost
estimates and technology readiness assessments--could instill more
discipline into the front end of the acquisition process when it is
critical for programs to gain knowledge. Establishing a termination
criterion for Nunn-McCurdy cost breaches could help prevent the
acceptance of unrealistic cost estimates as a foundation for starting
programs.[Footnote 8] Having greater involvement by the combatant
commands in determining requirements and requiring greater consultation
between the requirements, budget, and acquisition processes could help
improve the department's efforts to balance its portfolio of weapon
system programs. In addition, several of the proposals as currently
drafted will codify what DOD policy already calls for, but are not
being implemented consistently in weapon programs.
Section 101: Systems Engineering Capabilities:
Requires DOD to (1) assess the extent to which the department has in
place the systems engineering capabilities needed to ensure that key
acquisition decisions are supported by a rigorous systems analysis and
systems engineering process and (2) establish organizations and develop
skilled employees to fill any gaps in such capabilities.
The lack of disciplined systems engineering analysis conducted prior to
starting system development has been a key factor contributing to poor
acquisition outcomes. Systems engineering activities--requirements
analysis, design, and testing--are needed to ensure that a weapon
system program's requirements are achievable and designable given
available resources, such as technologies. In recent years, DOD has
taken steps to improve its systems engineering capabilities by
establishing a Systems and Software Engineering Center of Excellence
and publishing guidance to assist the acquisition workforce in the
development of systems engineering plans, education, and training.
However, as the National Research Council recently reported, DOD's
systems engineering capabilities have declined over time and shifted
increasingly to outside contractors.[Footnote 9] A comprehensive
assessment to determine what systems engineering capabilities are in
place and what capabilities are needed, as recommended in the proposed
legislation, is a critical first step in enhancing the function of
systems engineering in DOD acquisitions. At the same time, it will be
important for DOD to implement steps to ensure systems engineering is
applied in the right way and at the right time.
Section 102: Developmental Testing:
Requires DOD to reestablish the position of Director of Developmental
Test and Evaluation and requires the services to assess and address any
shortcomings in their developmental testing organizations and
personnel.
Robust developmental testing efforts are an integral part of the
systems development process. They help to identify, evaluate, and
reduce technical risks, and indicate whether the design solution is on
track to satisfy the desired capabilities. As the Defense Science Board
reported in 2008, developmental testing in weapon system programs needs
to be improved.[Footnote 10] We believe that developmental testing
would be strengthened by a formal elevation of its role in the
acquisition process and the reestablishment of a Director of
Developmental Test and Evaluation position. Furthermore, requiring the
Director to prepare an annual report for Congress summarizing DOD's
developmental test and evaluation activities would provide more
accountability. We also agree that the military services should be
required to assess their respective developmental testing entities and
address any shortcomings. This action would help ensure that the
services have the knowledge and capacity for effective developmental
test efforts.
Section 103: Technological Maturity Assessments:
Makes it the responsibility of the Director of Defense Research and
Engineering (DDR&E) to periodically review and assess the technological
maturity of critical technologies used in major defense acquisition
programs.
Ensuring that programs have mature technology before starting systems
development is critical to avoiding cost and schedule problems, yet for
many years we have reported that a majority of programs go forward with
immature technologies and experience significant cost growth.
Legislation enacted by Congress in 2006, requiring DOD to certify that
the technology in a program has been demonstrated in a relevant
environment before it receives approval to start system development,
has begun to help address this problem. Since the legislation was
enacted, DOD has asked the DDR&E to conduct independent reviews of
technology readiness assessments for system development milestone
decisions. Although DDR&E reviews are advisory in nature, we have seen
reviews that have pushed programs to do more to demonstrate technology
maturity. The improvements that this proposed legislation, as currently
written, is intended to bring about may already be occurring in DOD.
Congress, however, may wish to consider requiring the DDR&E to conduct
technology readiness reviews not just periodically, but for all major
defense acquisition programs, and whether or not DDR&E has the capacity
and resources to effectively conduct technology assessments.
Section 104: Independent Cost Assessment:
Establish a Director of Independent Cost Assessment to ensure that cost
estimates for major defense acquisition programs are fair, reliable,
and unbiased.
Within DOD, the Cost Analysis Improvement Group (CAIG) is the
organization responsible for conducting independent costs estimates for
major defense acquisition programs. The CAIG reports to the
department's Director of Program Analysis and Evaluation, but its
principal customer is the Under Secretary of Defense for Acquisition,
Technology and Logistics. We believe that establishing an independent
assessment office that reports directly to the Secretary or Deputy
Secretary of Defense and to Congress--similar to the Office of the
Director of Operation Test and Evaluation--would more fully integrate
cost estimating with the acquisition management framework and provide
an increased level of accountability. We see no reason why CAIG should
not form the basis of the proposed organization. Congress may also wish
to consider appointing the Director for a time-certain term and making
the Director responsible for prescribing cost-estimating policy and
guidance and for preparing an annual report summarizing cost estimates
for major acquisition programs. Ultimately, however, improved cost
estimating will only occur if there is a better foundation for planning
and acquiring weapon system programs--one that promotes well-defined
requirements, is knowledge-based and informed by disciplined systems
engineering, requires mature technology, and adheres to shorter
development cycle times.
Section 105: Role of Combatant Commanders:
Requires the Joint Requirements Oversight Council (JROC) to seek and
consider input from the commanders of the combatant commands in
identifying joint military requirements.
Requirements determination in DOD, particularly for major weapon system
programs, continues to be driven largely by the military services.
Studies by the Defense Science Board, Center for Strategic and
International Studies, and others have revealed that although the
combatant commands--which are responsible for planning and executing
military missions--are the principal joint warfighting customer in DOD,
they have played a limited role in determining requirements. Currently,
the JROC is doing more to seek out and consider input from the
combatant commands through regular trips and meetings to discuss
capability needs and resourcing issues. However, many of the combatant
commands do not believe that their needs, which are reflected through
the Integrated Priority List process, are sufficiently addressed
through the department's JCIDS process. For the combatant commands to
meet this proposed legislative mandate and have more influence in
establishing requirements, DOD should consider providing the combatant
commands with additional resources to establish robust analytical
capabilities for identifying and assessing their capability needs.
Ultimately, the department must better prioritize and balance the needs
of the military services, combatant commands, and other defense
components, and be more agile in responding to near-term capability
needs.
Section 201: Trade-offs of Cost, Schedule, and Performance:
Requires consultation between the budget, requirements, and acquisition
processes to ensure the consideration of trade-offs between cost,
schedule, and performance early in the process of developing major
weapon systems.
As currently structured, DOD's budget, requirements, and acquisition
processes do not operate in an integrated manner. The function and
timing of the processes are not sufficiently synchronized, and the
decision makers for each process are motivated by different incentives.
These weaknesses have contributed to the development of a portfolio
with more programs than available resources can support and programs
that launch into system development without executable business cases.
We have recommended that the department establish an enterprisewide
portfolio management approach to weapon system investment decisions
that integrates the determination of joint warfighting needs with the
allocation of resources, and cuts across the services by functional or
capability area.[Footnote 11] To ensure the success of such an
approach, we believe that the department should establish a single
point of accountability with the authority, responsibility, and tools
to implement portfolio management effectively.
Section 202: Preliminary Design Review:
Require the completion of a Preliminary Design Review (PDR) and a
formal post-PDR assessment before a major defense acquisition program
receives approval to start system development.
We have found that a key deliverable in a knowledge-based acquisition
process is the preliminary design of the proposed solution based on a
robust systems engineering assessment prior to making a large financial
commitment to system development. Early systems engineering provides
the knowledge needed by a developer to identify and resolve gaps, such
as overly optimistic requirements that cannot be met with current
resources, before product development begins. Consequently, DOD would
have more confidence that a particular system could successfully
proceed into a detailed system development phase and meet stated
performance requirements within cost, schedule, risk, and other
relevant constraints. The recently revised DOD acquisition policy
places an increased emphasis on programs planning for preliminary
design review prior to the start of system development but does not go
as far as making it a requirement to do so. We support any effort to
add controls to the acquisition process to ensure that timely and
robust systems engineering is conducted before major investment
decisions, such as the approval to start system development, are made.
Section 203: Life-Cycle Competition:
Require DOD to adopt measures recommended by the 2008 Defense Science
Board Task Force on Defense Industrial Structure for Transformation--
such as competitive prototyping, dual sourcing, open architectures,
periodic competitions for subsystem upgrades, and licensing of
additional suppliers--to maximize competition throughout the life of a
program.
We have reported in the past on the problem of diminishing competition
and the potential benefits of more competition.[Footnote 12] In
discussing the environment that leads to poor acquisition outcomes, we
have noted that changes within the defense supplier base have added
pressure to this environment. We noted that in 2006, a DOD-commissioned
study found that the number of fully competent prime contractors
competing for programs had fallen from more than 20 in 1985 to only 6,
and that this has limited DOD's ability to maximize competition in
order to reduce costs and encourage innovation. However, avenues exist
for reducing costs through competition. For example, we reported that
although continuing an alternate engine program for the Joint Strike
Fighter would cost significantly more in development costs than a sole-
source program, it could, in the long run, reduce overall life cycle
costs and bring other benefits.
Section 204: Nunn-McCurdy Breaches:
Requires that a major defense acquisition program that experiences a
critical Nunn-McCurdy cost breach be terminated unless the Secretary of
Defense certifies that (1) continuing the program is essential to
national security and the program can be modified to proceed in a cost-
effective manner and (2) the program receives a new milestone approval
prior to the award of any new or modified contract extending the scope
of the program.
In order for DOD to improve its program outcomes, realistic cost
estimates must be required when programs are approved for development
initiation. DOD often underestimates costs in large part because of a
lack of knowledge and overly optimistic assumptions about requirements
and critical technologies. This underestimation is also influenced by
DOD's continuing failure to balance its needs with available resources,
which promotes unhealthy competition among programs and encourages
programs to overpromise on performance capabilities and underestimate
cost. This false optimism is reinforced by an acquisition environment
in which there are few ramifications for cost growth and delays. Only
in very rare instances have programs been terminated for poor
performance. When DOD consistently allows unsound, unexecutable
programs to begin with few negative ramifications for poor outcomes,
accountability suffers. As section 204 proposes, the strengthening of
the Nunn-McCurdy provision--by including the potential termination of
programs that experience critical cost growth--could facilitate a
change in DOD's behavior by preventing the acceptance of unrealistic
cost estimates as a foundation for program initiation and placing more
accountability on senior DOD leadership for justifying program
continuation. Programs may thus be forced to be more candid and up
front about potential costs, risks, and funding needs, and the
likelihood of delivering a successful capability to the warfighter at
the cost and in the time promised may grow.
Section 205: Organizational Conflicts of Interest:
Prohibits systems engineering contractors from participating in the
development or construction of major weapon systems on which they are
advising DOD, and requires tightened oversight of organizational
conflicts of interest by contractors in the acquisition of major weapon
systems.
The defense industry has undergone significant consolidation in recent
years which has resulted in a few large, vertically integrated prime
contractors. This consolidation creates the potential for
organizational conflicts of interest where, for example, one business
unit of a large company may be asked to provide systems engineering
work on a system being produced by another unit of the same company. As
the Defense Science Board has recognized, these conflicts of interest
may lead to impaired objectivity, which may not be mitigated
effectively through techniques such as erecting a firewall between the
employees of the two units. While the Federal Acquisition Regulation
currently covers some cases of potential organizational conflicts of
interest involving the systems engineering function, there may be a
need for additional coverage in this area. In general, we would support
efforts to enhance the oversight of potential organizational conflicts
of interest, particularly in the current environment of a heavily
consolidated defense industry.
Section 206: Acquisition Excellence:
Establishes an annual awards program to recognize individuals and teams
that make significant contributions to the improved cost, schedule, and
performance of defense acquisition programs:
We support the creation of an annual awards program to recognize
individuals and teams for improving the cost, schedule, and performance
of defense acquisition programs. We have reported that meaningful and
lasting reform will not be achieved until the right incentives are
established and accountability is bolstered at all levels of the
acquisition process. The need for incentives emerged as a significant
issue in our recent discussions with acquisition experts examining
potential changes to the acquisition processes enumerated in last
year's defense authorization act. The discussions revealed that those
changes may not achieve the desired improvement in acquisition outcomes
unless they are accompanied by changes in the overall acquisition
environment and culture, and the incentives they provide for success.
Concluding Observations on What Remains to Be Done:
A broad consensus exists that weapon system problems are serious and
that their resolution is overdue. With the federal budget under
increasing strain from the nation's economic crisis, the time for
change is now. DOD is off to a good start with the recent revisions to
its acquisition policy, which, if implemented properly, should provide
a foundation for establishing sound, knowledge-based business cases
before launching into development and for maintaining discipline after
initiation. The new policy will not work effectively, however, without
changes to the overall acquisition environment. Resisting the urge to
achieve the revolutionary but unachievable capability, allowing
technologies to mature in the science and technology base before
bringing them onto programs, ensuring that requirements are well-
defined and doable, and instituting shorter development cycles would
all make it easier to estimate costs accurately, and then predict
funding needs and allocate resources effectively. But these measures
will succeed only if the department uses an incremental approach.
Constraining development cycle times to 5 or 6 years will force more
manageable commitments, make costs and schedules more predictable, and
facilitate the delivery of capabilities in a timely manner.
Acquisition problems are also likely to continue until DOD's approach
to managing its weapon system portfolio (1) prioritizes needs with
available resources, thus eliminating unhealthy competition for funding
and the incentives for making programs look affordable when they are
not; (2) facilitates better decisions about which programs to pursue
and which not to pursue given existing and expected funding; and (3)
balances the near-term needs of the joint warfighter with the long-term
need to modernize the force. Achieving this affordable portfolio will
require strong leadership and accountability. Establishing a single
point of accountability could help the department align competing needs
with available resources.
The department has tough decisions to make about its weapon systems and
portfolio, and stakeholders, including military services, industry, and
Congress, have to play a constructive role in the process toward
change. Reform will not be achieved until DOD changes its acquisition
environment and the incentives that drive the behavior of its decision
makers, the military services, program managers, and the defense
industry.
Mr. Chairman, this concludes my prepared statement. I would be happy to
answer any questions you may have at this time.
Contacts and Acknowledgements:
For further information about this statement, please contact Michael J.
Sullivan (202) 512-4841 or sullivanm@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this statement. Individuals who made key contributions
to this statement include John Oppenheim, Charlie Shivers, Dayna
Foster, Matt Lea, Susan Neill, Ron Schwenn, and Bruce Thomas.
[End of section]
Related GAO Products:
Defense Acquisitions: Perspectives on Potential Changes to DOD's
Acquisition Management Framework. [hyperlink,
http://www.gao.gov/products/GAO-09-295R]. Washington, D.C.: February
27, 2009.
Defense Management: Actions Needed to Overcome Long-standing Challenges
with Weapon Systems Acquisition and Service Contract Management.
[hyperlink, http://www.gao.gov/products/GAO-09-362T]. Washington, D.C.:
February 11, 2009.
Defense Acquisitions: Fundamental Changes Are Needed to Improve Weapon
Program Outcomes. [hyperlink, http://www.gao.gov/products/GAO-08-
1159T]. Washington, D.C.: September 25, 2008.
Defense Acquisitions: DOD's Requirements Determination Process Has Not
Been Effective in Prioritizing Joint Capabilities. [hyperlink,
http://www.gao.gov/products/GAO-08-1060]. Washington, D.C.: September
25, 2008.
Defense Acquisitions: A Knowledge-Based Funding Approach Could Improve
Major Weapon System Program Outcomes. [hyperlink,
http://www.gao.gov/products/GAO-08-619]. Washington, D.C.: July 2,
2008.
Defense Acquisitions: Better Weapon Program Outcomes Require
Discipline, Accountability, and Fundamental Changes in the Acquisition
Environment. [hyperlink, http://www.gao.gov/products/GAO-08-782T].
Washington, D.C.: June 3, 2008.
Defense Acquisitions: Assessments of Selected Weapon Programs.
[hyperlink, http://www.gao.gov/products/GAO-08-467SP]. Washington,
D.C.: March 31, 2008.
Best Practices: Increased Focus on Requirements and Oversight Needed to
Improve DOD's Acquisition Environment and Weapon System Quality.
[hyperlink, http://www.gao.gov/products/GAO-08-294]. Washington, D.C.:
February 1, 2008.
Cost Assessment Guide: Best Practices for Estimating and Managing
Program Costs. [hyperlink, http://www.gao.gov/products/GAO-07-1134SP].
Washington, D.C.: July 2007.
Defense Acquisitions: Assessments of Selected Weapon Programs.
[hyperlink, http://www.gao.gov/products/GAO-07-406SP]. Washington,
D.C.: March 30, 2007.
Best Practices: An Integrated Portfolio Management Approach to Weapon
System Investments Could Improve DOD's Acquisition Outcomes.
[hyperlink, http://www.gao.gov/products/GAO-07-388]. Washington, D.C.:
March 30, 2007.
Defense Acquisitions: Major Weapon Systems Continue to Experience Cost
and Schedule Problems under DOD's Revised Policy. [hyperlink,
http://www.gao.gov/products/GAO-06-368]. Washington, D.C.: April 13,
2006.
DOD Acquisition Outcomes: A Case for Change. [hyperlink,
http://www.gao.gov/products/GAO-06-257T]. Washington, D.C.: November
15, 2005.
Best Practices: Better Support of Weapon System Program Managers Needed
to Improve Outcomes. [hyperlink,
http://www.gao.gov/products/GAO-06-110]. Washington, D.C.: November 1,
2005.
Defense Acquisitions: Stronger Management Practices Are Needed to
Improve DOD's Software-Intensive Weapon Acquisitions. [hyperlink,
http://www.gao.gov/products/GAO-04-393]. Washington, D.C.: March 1,
2004.
Best Practices: Setting Requirements Differently Could Reduce Weapon
Systems' Total Ownership Costs. [hyperlink,
http://www.gao.gov/products/GAO-03-57]. Washington, D.C.: February 11,
2003.
Defense Acquisitions: Factors Affecting Outcomes of Advanced Concept
Technology Demonstration. [hyperlink,
http://www.gao.gov/products/GAO-03-52]. Washington, D.C.: December 2,
2002.
Best Practices: Capturing Design and Manufacturing Knowledge Early
Improves Acquisition Outcomes. [hyperlink,
http://www.gao.gov/products/GAO-02-701]. Washington, D.C.: July 15,
2002.
Defense Acquisitions: DOD Faces Challenges in Implementing Best
Practices. [hyperlink, http://www.gao.gov/products/GAO-02-469T].
Washington, D.C.: February 27, 2002.
[End of section]
Footnotes:
[1] GAO, Defense Acquisitions: A Knowledge-Based Funding Approach Could
Improve Major Weapon System Program Outcomes, [hyperlink,
http://www.gao.gov/products/GAO-08-619] (Washington, D.C.: July 2,
2008), and Defense Acquisitions: Perspectives on Potential Changes to
DOD's Acquisition Management Framework, [hyperlink,
http://www.gao.gov/products/GAO-09-295R] (Washington, D.C.: Feb. 27,
2009).
[2] GAO, Best Practices: An Integrated Portfolio Management Approach to
Weapon System Investments Could Improve DOD's Acquisition Outcomes,
[hyperlink, http://www.gao.gov/products/GAO-07-388] (Washington, D.C.:
Mar. 30, 2007).
[3] GAO, Defense Acquisitions: DOD's Requirements Determination Process
Has Not Been Effective in Prioritizing Joint Capabilities, [hyperlink,
http://www.gao.gov/products/GAO-08-1060] (Washington, D.C.: Sept. 25,
2008).
[4] [hyperlink, http://www.gao.gov/products/GAO-08-619].
[5] GAO, Best Practices: Increased Focus on Requirements and Oversight
Needed to Improve DOD's Acquisition Environment and Weapon System
Quality, [hyperlink, http://www.gao.gov/products/GAO-08-294]
(Washington, D.C.: Feb. 1, 2008).
[6] [hyperlink, http://www.gao.gov/products/GAO-08-619].
[7] The position of Under Secretary of Defense for Acquisition was
established in 1986 and the title was subsequently changed to the Under
Secretary of Defense for Acquisition, Technology and Logistics in 2000.
Since 1986, there have been 11 under secretaries.
[8] 10 U.S.C. § 2433 (a) (5) requires the Secretary of Defense to
report to Congress when a program's acquisition unit cost increases by
at least 25 percent over the current baseline estimate or increases by
at least 50 percent over the original baseline estimate.
[9] National Research Council, Pre-Milestone A and Early-Phase Systems
Engineering: A Retrospective Review and Benefits for Future Air Force
Systems Acquisition (Washington, D.C.: February 2008).
[10] Defense Science Board, Report on Developmental Test & Evaluation
(Washington, D.C.: May 2008).
[11] [hyperlink, http://www.gao.gov/products/GAO-07-388].
[12] GAO, Defense Acquisitions: Better Weapon Program Outcomes Require
Discipline, Accountability, and Fundamental Changes in the Acquisition
Environment, [hyperlink, http://www.gao.gov/products/GAO-08-782T]
(Washington, D.C.: June 3, 2008).
[End of section]
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